Canadian City Proposes Location Restrictions for Payday Lenders

Sep 2, 2019FinTech, News

Last week, the planning department for Ottawa proposed restrictions for new payday loan businesses in the city.  The proposal stems from a decision by the Ontario provincial government last year to allow cities to determine building restrictions on payday lenders. 

The proposal includes a “minimum separation distance of 1,000 metres between lots containing payday loan businesses and 500 metres between those businesses and casinos and racetracks.” In addition, the proposal would prohibit payday loan companies from setting up shop in residential buildings, like condominiums or apartment complexes, and local commercial zones. To mitigate the impact it may have, the proposal would only impact new payday loan operators as current stores would be grandfathered in. 

According to local papers, city officials had some concerns that restricting access to payday loans would only drive up the cost since it may reduce competition. Also, restricting access to credit does not reduce the need for credit, which could possibly make it harder for local residents to obtain financing to cover short-term emergencies. 

In fact, the World Bank conducted a study last year that found that restricting access to short-term loans (i.e. capping interest rates) can reduce the cost of credit and limit predatory practices by certain lenders. However, these restrictions often have adverse and unintended side effects, including “increases in non-interest fees and commissions, reduced price  transparency, lower credit supply and loan approval rates for small and risky borrowers, lower number of institutions and reduced branch density, as well as adverse impacts on bank profitability.”

The planning committee is set to vote on the proposal on September 12.

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